muneration received by an entertainer or athlete until the taxable year has ended.

The proposed protocol (paragraph 16) clarifies that for purposes of this Article, remuneration derived by an entertainer or athlete who is a resident of one of the countries would include remuneration for any personal activities performed in the other country relating to that person's reputation as an entertainer or athlete (such as compensation for services performed in personal endorsements of commercial products). The provisions of this Article would not apply, however, to auxiliary or supporting personnel (e.g., technicians), or to managers or coaches. Income from personal services performed by those persons would be subject to the provisions of Articles 14 (Independent Personal Services) and 15 (Dependent Personal Services) of the proposed treaty, as appropriate.

The proposed treaty provides that where income in respect of activities exercised by an entertainer or athlete in his or her capacity as such accrues not to the entertainer or athlete, but to another person, that income would be taxable by the country in which the activities are exercised unless it is established that neither the entertainer or athlete nor persons related to him or her participate directly or indirectly in the profits of that other person in any manner, including the receipt of deferred remuneration, bonuses, fees, dividends, partnership distributions, or other income distributions. (This provision applies notwithstanding the business profits and personal service articles (Articles 7, 14, and 15).) This provision prevents highly paid performers and athletes from avoiding tax in the country in which they perform by, for example, routing the compensation for their services through a third entity such as a personal holding company or a trust located in a country that would not tax the income.

The foregoing provisions are similar to provisions in the U.S. and OECD model treaty articles dealing with entertainers and athletes. The $3,000 threshold for source country taxation, however, is considerably lower than the corresponding $20,000 threshold in the U.S. model. In addition, the proposed treaty departs from the models in excluding from the article income derived from activities performed in a country by entertainers or athletes if the visit to that country is substantially supported, directly or indirectly, by public funds of the other country or a political subdivision or a local authority thereof. In that case, the income is taxable only in the entertainer's or athlete's residence country. According to the Technical Explanation, it is understood that the competent authorities could consult as to which visits satisfy this standard.

Article 19. Pensions, Annuities, Alimony, and Child Support

Under the proposed treaty, pensions and other similar remuneration derived and beneficially owned by a resident of either country in consideration of past employment by that person (or by another individual, the recipient's spouse, for example, who is a resident of the same country) would be subject to tax only in the recipient's country of residence at the time the remuneration is received.78 In

78 This provision would apply to a pension whether paid periodically in installments or in a lump sum.

contrast, the proposed treaty provides that social security and other public pensions paid by one of the countries (the source country) to a resident of the other country or to a U.S. citizen would be taxable by the source country, but not by the country of residence. Consistent with the U.S. model treaty, this rule would be an exception to the proposed treaty's saving clause (Article 1, paragraph 3). Thus, a Mexican social security benefit would be exempt from U.S. tax even if the beneficiary is a U.S. resident or a U.S. citizen.

The above rules would be subject to the provisions of Article 20 (Government Service). Thus, they would not apply, for example, in the case of pensions paid to a resident of one country attributable to services performed for government entities of the other, unless the resident of the first country is also a citizen of the first country. The proposed treaty also provides that annuities would be taxed only in the country of residence of the person who beneficially owns and derives them. Annuities are defined under the proposed treaty as a stated sum paid periodically at stated times during a specified number of years, under an obligation to make the payments in return for adequate and full consideration (other than services rendered).

The proposed treaty provides for the treatment of alimony and child support payments made by a resident of one of the countries to a resident of the other country. The proposed treaty is similar to the U.S. model to the extent that it provides that child support would be taxable only in the source country (i.e., the country of residence of the payor). However, it differs from the U.S. model with respect to the taxation of alimony payments. Under the proposed treaty, alimony payments also would be taxable only in the source country (i.e., the country of residence of the payor). By contrast, the U.S. model would permit only the country of residence of the person receiving alimony payments to tax such payments.

The term "alimony" as used in the proposed treaty means periodic payments made pursuant to a written separation agreement or a decree of divorce, separate maintenance, or compulsory support. Child support payments are defined by the proposed treaty as periodic payments for the support of a minor child, made pursuant to a written separation agreement or decree of divorce, separate maintenance, or compulsory support.

These treaty rules on alimony and child support would not be superseded by the saving clause.79 Thus, under the proposed treaty, à U.S. citizen could not be taxed by the United States on alimony paid by a Mexican resident, despite the tax jurisdiction generally maintained by the United States over its citizens.

Article 20. Government Service

Under the proposed treaty, remuneration, other than a pension, paid by one of the countries (or a political subdivision or local authority thereof) to an individual in respect of services rendered to

79 Under U.S. law, child support payments are not taxable to the recipient, and may not be deducted by the payor. Alimony payments, however, are taxable to the recipient, and are deductible by the payor.

Under Mexican law, neither alimony nor child support payments are taxable to the recipient or deductible by the payor.

that country (or subdivision or authority) generally would be taxable only by that country. Such remuneration would be taxable only in the other country, however, if the services are rendered in that other country by an individual who is a resident of that country and who (1) is also a national of that country, or (2) did not become a resident of that country solely for the purpose of rendering the services.

The proposed treaty further provides that any pension paid directly by, or out of funds created by, one of the countries (or a political subdivision or local authority thereof) to an individual in respect of services previously rendered to that country (or subdivision or authority) would be taxable only by that country. Such a pension would be taxable only by the other country, however, if the individual is a national and resident of that other country. This rule would not apply to social security benefits and other public pensions which are not paid in respect of services rendered to the paying government.80

The provisions described in the foregoing paragraphs would be exceptions to the proposed treaty's saving clause for individuals who are neither citizens nor permanent residents of the country where the services are performed. Thus, for example, payments by the government of Mexico to its employees at the Mexican Embassy in the United States would be exempt from U.S. tax if the employees are not U.S. citizens or green card holders and were not residents of the United States at the time they became employed by the Mexican government.

Similar to the U.S. and OECD model treaties, the proposed treaty provides that if a country or one of its political subdivisions or local authorities is carrying on commercial or industrial activities (as opposed to functions of a governmental nature), the provisions of Articles 14 (Independent Personal Services), 15 (Dependent Personal Services), 16 (Directors' Fees), 18 (Artistes and Athletes), and 19 (Pensions, Annuities, Alimony, and Child Support) would apply to remuneration and pensions paid for services rendered in connection with the business. For example, under the proposed treaty, a Mexican government official stationed in the United States would not be subject to U.S. income tax. However, a resident of Mexico who works for a Mexican state-owned commercial bank in the United States would be taxable by the United States on his wages pursuant to the provisions of Article 15 of the proposed treaty.

The Technical Explanation states that it is understood by both countries that the provisions of Article 20 would apply only to remuneration and pensions in respect of services rendered in the discharge of functions of a governmental nature.

Article 21. Students

Under the proposed treaty, a student or business apprentice who is or was immediately before visiting the host country, a resident of the other country, would not be taxable in the host country on certain payments he or she receives. In order to qualify for the exemption from host country tax, the individual must be in the host

80 Such amounts would be subject to the provisions of Article 19 (Pensions, Annuities, Alimony, and Child Support).

country solely for the purpose of his or her education or training.81 In such case, payments received for the purpose of his or her maintenance, education, or training would be exempt if they arise from sources, or are remitted from, outside of the host country.82

This provision of the proposed treaty is excluded from the saving clause in the case of persons who are neither citizens nor lawful permanent residents of the host country. It closely resembles the corresponding provisions of the OECD and U.S. model treaties.

Article 22. Exempt Organizations

In general

This article of the proposed treaty would provide for reciprocal recognition of certain tax-exempt organizations that reside in either country and qualify for benefits under the treaty's limitation on benefits article (Article 17). In addition, this article would permit deductions for contributions made by a resident of one of the countries to a qualified charitable organization located in the other country. The provisions of this article would not be subject to the proposed treaty's saving clause; the United States would be required, therefore, to permit a deduction for contributions by its citizens or residents to Mexican charitable organizations even though the United States has not, under domestic law, recognized the Mexican organizations as public charities. In addition, the United States could not require so-called "expenditure responsibilities" of U.S. private foundations that make contributions to qualified Mexican charities.

Reciprocal tax exemption

The proposed treaty provides that an organization that is a resident of either the United States or Mexico which is operated exclusively for religious, scientific, literary, educational, or other charitable purposes would be exempt from income tax in the other country if it is also exempt from income tax in its country of residence. In such a case, the exemption granted by the other country would only be with respect to the items of income of such organization that would be exempt from tax under the domestic laws of that country if received by an organization that was created for religious, scientific, literary, educational, or other charitable purposes and was recognized as a tax-exempt entity by that country. Thus, for instance, this provision of the proposed treaty would not preclude the United States from taxing the income of a Mexican charitable organization that, if earned by a U.S. charitable organization, would have constituted unrelated business taxable income under the Internal Revenue Code.

Paragraph 17(a) of the proposed protocol states that for the purpose of allowing an organization that is a resident of one treaty country to be exempt from tax in the other country under this arti

81 According to the Technical Explanation, use of the word "solely" in the proposed treaty is meant to describe persons participating in a full-time program of study or training. It is not intended, however, to exclude full-time students who, in accordance with their visas, are also employed in the host country.

82 The exemption would not apply to amounts received as compensation for services rendered. Such amounts would be subject to the provisions of Article 14 (Independent Personal Services) or Article 15 (Dependent Personal Services), as the case may be.

cle of the proposed treaty, the other country would accept a certification made by the country of residence that the organization is operated exclusively for the purposes articulated in the treaty. If the competent authority of the other country, however, determines that granting an exemption would not be appropriate in a specific case or circumstance, the exemption could be denied after consultation with the competent authority of the country of residence.

Deduction for charitable contributions

The proposed treaty also provides that if the United States and Mexico agree that a provision of Mexican internal law provides standards for organizations authorized to receive deductible contributions which are essentially equivalent to the standards of U.S. law for public charities, then an organization determined by Mexican authorities to meet such standards would be treated as a public charity under U.S. law for purposes of grants by U.S. private foundations and public charities. Thus, such grants would not be considered "taxable expenditures" for purposes of the excise tax on taxable expenditures (Code sec. 4945).

In addition, contributions by a U.S. citizen or resident to an organization determined by Mexican authorities to meet such standards would be treated as charitable contributions to a public charity under U.S. law. Such contributions, therefore, generally would be deductible for U.S. income tax purposes. The proposed treaty provides, however, that such contributions would not be deductible in any taxable year to the extent that they exceed an amount determined by applying the limitations of U.S. law on the deductibility of charitable contributions to public charities (as those limitations may be amended from time to time without changing the general principle hereof) to the person's income for the taxable year from Mexican sources. According to the proposed treaty, this rule should not be interpreted to allow in any taxable year deductions for charitable contributions in excess of the amount allowed under the limitations of U.S. law.

Under a reciprocal rule, the proposed treaty provides that if the two countries agree that U.S. law provides standards for public charities that are essentially equivalent to the standards of Mexican law for organizations authorized to receive deductible contributions, then contributions by a resident of Mexico to an organization determined by the U.S. authorities to meet the standards for public charities would be treated as deductible under Mexican law. Such contributions, however, would not be deductible in any taxable year to the extent that they exceed an amount determined by applying the limitations of Mexican law on the deductibility of contributions to organizations authorized to receive deductible contributions (as those limitations may be amended from time to time without changing the general principle hereof) to the person's income for the taxable year from U.S. sources. According to the proposed treaty, this rule should not be interpreted to allow in any taxable year deductions for charitable contributions in excess of the amount allowed under the limitations of Mexican law.

According to the Technical Explanation, the U.S. law limitations that would remain applicable under the proposed treaty include, in particular, the percentage and other limitations under section 170